The Federal Reserve is the largest US Debt Holder/Buyer - owns some 52% of all US Debt! (inflationary).

China and Japan - two largest US Debt buyers (own some 10% of US Debt) - are undergoing recession. (weaker T-Bill Demand)

Further, global Dollar appreciation and falling US consumption has made forced Chinese buying of US Debt, less necessary.

Balance sheets of Oil Exporters are collapsing. And most foreign public and private debt buyers are undergoing recession and $$$ loss.

The implication of a Global Recession and unprecedented US Deficit - less foreign cash to buy more US T-Bills, that ultimately get monetized by the FED = long term inflationary, that only gets arrested by higher interest rates once banks clear.

Further:

US Banks selling T-Bills and going short is the canary in the coal mine.

FED intends to buy US T-Bills from Banks. Could be ploy to take worthless bonds off Banks under the guise of "saving the whales".

Moral of the Story: Once Banks lend again and deflation slows - assuming we don't flounder around like Japan did for 10+ years (and we won't) - inflation returns, and Bernacke then fucks the Common Man with jacked rates to contain (after the Banks are saved).

When that happens, Bonds sell-off, big-time.

This is a long-term play.

Deflation could last well into 2010. Probably end with 12 to 24 months, then inflation, then bond sell-off.

Moral of the Story: Once Banks lend again and deflation slows - assuming we don't flounder around like Japan did for 10+ years (and we won't) - inflation returns, and Bernacke then fucks the Common Man with jacked rates to contain (after the Banks are saved).

When that happens, Bonds sell-off, big-time.

This is a long-term play.

Deflation could last well into 2010. Probably end with 12 to 24 months, then inflation, then bond sell-off.

Best way to play rebound in yields is a 10 year put swaption struck at a yield 300 points higher than today's yield. This product can be bought for pennies on the dollar and will explode in price should yields bounce a couple of hundred points in the next 2-5 years. Sadly, its only available to institutional buyers or very high net worth individuals.

This is a no brainer long term trade. Short term it may not be profitable but long term one should do great imo.
If you wanna play it you can get long TBT(2xinverse 20yr+ long bond) & PST(2xInverse 7-10 bond).